Key Points on the Financial Sector Omnibus Law: General Overview

14 Feb

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General Overview

On 12 January 2023, the House of Representatives (Dewan Perwakilan Rakyat – “DPR”) enacted Law No. 4 of 2023 regarding the Development and Strengthening of the Financial Sector (the “Financial Sector Omnibus Law”).

This Financial Sector Omnibus Law regulates a combination of multi-sectoral and multi-institution regulations such as the provision of the financial institutions (Bank Indonesia; Deposit Insurance Agency or Lembaga Penjamin Simpanan – “LPS”; Financial Services Authority or Otoritas Jasa Keuangan – “OJK”), banking law, capital markets law, insurance law, bullion business activities, cooperatives, Micro Small Medium Enterprises (MSME) financing provision, and others.

After enacting the Financial Sector Omnibus Law, relevant institutions will provide implementing regulations to regulate each provision further.

The Digital Form of Rupiah Currency

The Bank Indonesia introduces and further regulates provisions of a digital form of the Rupiah currency, namely the “Digital Rupiah”,¹ which now will be under the Bank Indonesia’s sole authorization. The management of the Digital Rupiah must consider providing Digital Rupiah as a legal means of payment for the use of digital technology that can guarantee the security of data and information systems and the protection of personal data.²

Bullion Businesses

Bullion businesses are business activities related to gold in the form of deposits, financing, trading, safekeeping of gold, and other activities carried out by the Financial Services Institution (“FSI”). FSIs conducting bullion businesses must obtain a specific business license that the OJK issues.

Cryptocurrency Supervision by OJK

The Financial Sector Technology Innovation (Inovasi Teknologi Sektor Keuangan – “ITSK”) is technology-based innovations that impact products, activities, services and business models in the digital financial ecosystem. Through the enactment of the Financial Sector Omnibus Law, crypto assets include in ITSK, alongside other ITSK clusters such as payment systems, investment management, fundraising, etc.³ In this regard, Bank Indonesia and OJK shall regulate and supervise the implementation of ITSK based on their respective scope of authority.⁴

In addition to the above, the company engaging in ITSK cluster (including the cryptocurrency) shall (i) in the form of a legal entity; (ii) apply risk management and governance principles; (iii) maintain consumer data protection and personal data; (iv) ensure the security and reliability of information systems, including cyber resilience; (v) comply with licensing terms regulated by Bank Indonesia and OJK; and (vi) submit data, information, and reports periodically or from time to time to Bank Indonesia or the OJK, under their respective authorities.⁵

Broadening of LPS’ Duties to Guarantee the Insurance Policy

Previously, the LPS’ foremost authority and duty were to guarantee the saving or deposit of the (bank) consumers and participate in maintaining the stability of the banking system under their jurisdiction. By enacting the Financial Sector Omnibus Law, the duty of LPS is broadened to guarantee insurance policy.⁶ As for this duty, the LPS will (i) determine and collect guarantee premiums and periodic contributions for policy guarantees; (ii) obtain data on policyholders, insured, and insurance participants; (iii) conduct inspections of insurance companies and sharia insurance companies; (iv) determine the terms, procedures, and conditions regarding payment of guarantee claims and implementation of policy guarantees; (v), etc.⁷

Strengthening the Functions and Roles of People’s Economic Banks (Bank Perekonomian Rakyat – “BPR”)

This Financial Sector Omnibus Law also regulates provisions regarding the empowerment of the BPR’s function by expanding its business fields towards foreign exchange and fund transfers, as well as changing the name from the People’s Credit Bank (Bank Perkreditan Rakyat) to the People’s Economy Bank (Bank Perekonomian Rakyat).⁸

Carbon Exchange in the Capital Market

The carbon exchange (bursa karbon) is regulated under the scope of the capital market, by means, the OJK shall have the authority to regulate and supervise the carbon exchange.⁹ The carbon exchange is a market-based mechanism to reduce greenhouse gas emissions by selling and purchasing carbon units.¹⁰

Apart from carbon trading through direct transactions, domestic and foreign carbon trading activities may be carried out through the carbon exchange, which is a system that regulates carbon trading and carbon unit ownership records. The carbon exchange can only be conducted by an entity that has obtained a specific business license from the OJK.¹¹

However, it is to be noted that currently there is no specific information provided by this Financial Sector Omnibus Law related to the carbon exchange for mandatory or voluntary carbon mechanisms.

Further discussion of specific sectors will be discussed in a separate ARMA Update, along with the issuance of implementing regulations in the future.

Article 10 of Financial Sector Omnibus Law which amends Article 2 of Currency Law↩
Article 10 of Financial Sector Omnibus Law which adds Article 14.A of Currency Law↩
Article 213 of Financial Sector Omnibus Law↩
Article 216 (1) of Financial Sector Omnibus Law↩
Article 215 of Financial Sector Omnibus Law j.o. Article 218 and 221 of Financial Sector Omnibus Law↩
Article 7 of Financial Sector Omnibus Law which amends Article 4 of Law regarding LPS↩
Article 7 of Financial Sector Omnibus Law which amends Article 6 of Law regarding LPS↩
Article 13, 14, and 315 of Financial Sector Omnibus Law↩
Article 8 of Financial Sector Omnibus Law which amends Article 6 of Law regarding OJK j.o. Article 22 of Financial Sector Omnibus Law which amends Article 5 of the Capital Market Law↩
Article 23 of Financial Sector Omnibus Law↩
Article 24 of Financial Sector Omnibus Law and its elucidation↩

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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